Table of Contents

Managing the operational costs effectively for your business is important to the overall financial health of the company.  For long term success of any business, properly developing a strong risk management and comprehensive insurance program is crucial.  A key part of any risk management plan or insurance plan is workers compensation coverage which is based upon your expected loss rate.  Workers’ compensation insurance stands out both for its importance in protecting both the company and workers.

While most businesses are familiar with purchasing workers compensation or the claim process, a lesser-known concept is understanding the Expected Loss Rate (ELR) and how it interacts with workers compensation insurance.

So, what exactly is Expected Loss Rate, and why should you, as a business owner, care about it?




In layman’s terms, the Expected Loss Rate (ELR) is a metric calculated by Work Comp State Rating Bureaus and used by insurance companies to predict the average amount of losses (in terms of insurance claims) for every $100 of your company’s payroll as well as expected claim count. It’s a reflection of how risky your business activities are perceived to be. High-risk industries, such as construction, typically see higher ELRs, whereas lower-risk sectors, like professional services, enjoy lower ELRs.  This ELR is a factor that is used in calculating the experience mod on a workers compensation policy.

Even more interesting is that each state is unique and therefore unique values for the same type of work from one state to the next. This is commonly due to legal climate and dictated fee schedules.  Exploring the variation of Expected Loss Rates (ELR) by state involves understanding how geography, state regulations, industry presence, and claims history influence these rates. Workers’ compensation insurance can vary significantly due to a myriad of factors, including the legal framework, the cost of medical services, and the nature of the workforce in each state.

To complicate matters even more, the Expected Loss Rate is split into sub values for primary and excess loss amounts.  The overall Expected Loss Ratio varies by company size, payroll amount, and geographic location.

Let’s dive deeper into why Expected Loss Rate values can differ from one state to another and what it means for businesses operating in multiple jurisdictions.

State Regulations and Legal Framework
  • Each state in the U.S. has its own set of rules and regulations governing workers’ compensation insurance. These laws can affect everything from the benefits injured workers are entitled to, to how claims are processed and disputed. States with more generous compensation packages for injured workers or those with legal environments that favor claimants might have higher ELR values, reflecting the higher costs insurers expect to incur.
Industry Presence
    • The dominant industries within a state can significantly impact the overall ELR values. For instance, states with a high concentration of manufacturing, mining, or construction businesses might exhibit higher average ELRs due to the inherent risks associated with these industries. Conversely, states where the economy leans more towards service-based industries, such as technology or finance, might display lower ELRs on average.
Medical Costs and Access to Care
    • The cost of medical care varies widely across the United States, and this variation affects ELR values. States with higher medical costs may see higher ELRs, as the expenses associated with treating workplace injuries will be greater. Additionally, the availability of medical care, including specialists and rehabilitation services, can influence recovery times and outcomes, which in turn can affect ELR values.



High Expected Loss Rate Values
  • A high ELR suggests that your business is considered high-risk, with a greater likelihood of employee injuries or illnesses. This directly impacts your bottom line through higher insurance premiums, as insurers anticipate more frequent or severe claims.
Low Expected Loss Rate Values
  • Conversely, a low ELR indicates a lower risk of workplace incidents and consequently, fewer expected claims. This is good news for your insurance bills, as it generally leads to lower premiums.

It’s important to note that for the past decade ELR values have been decreasing as claim frequency has decreased.  Generally, this means the impact of a claim will be greater today than in the past.


The interaction between the ELR and the Experience Mod is central to determining an employer’s workers’ compensation insurance premiums.

Here’s how they interact:

Calculation of Expected Losses
  • The ELR is applied to an employer’s payroll in each classification code to calculate the total expected losses for that employer. This gives an estimate of what an average employer with similar payroll and classification codes would incur in losses.
Comparison to Actual Losses
  • The employer’s actual losses are then compared to these expected losses. If the actual losses are higher than expected, the Experience Mod will be greater than 1.0, leading to higher premiums. If the actual losses are lower, the Experience Mod will be less than 1.0, resulting in lower premiums.
Premium Adjustment
  • The Experience Mod is then used to adjust the employer’s workers’ compensation insurance premium. This adjustment reflects the employer’s safety record and loss history relative to other employers in the same industry.


As a Business, you can’t directly control the Expected Loss Rate. Historical claim information is grouped together by class code, aggregated by state and compiled by actuaries to produce the numerical value.  You can control your businesses safety practices and overall claim practices that are reflected in the Experience Mod Value.

When your company outperforms your peers, it shows that your company is safer than most, and results in a value less than 1.0.  The key benefit of this is safer companies pay less in workers compensation premiums than risker companies.

Here’s why:

Risk Management
  • A high mod score is a representation that your business is performing worse than other companies like yours based upon this information. This should be a wake-up call to reassess your workplace safety and protocols. By identifying and mitigating risks, you can not only create a safer environment for your employees and the benefit is you’ll reduce your experience mod and reduce your insurance costs over time.
Cost Control
  • In the competitive landscape of business, controlling costs is crucial to ongoing profitability. Paying more for workers compensation insurance premiums due higher claims directly impacts the bottom line.
Investment in Safety
  • Investing in employee safety isn’t just about compliance; it’s about cultivating a productive, healthy workplace. Implementing safety programs, training, and better equipment can lead to a virtuous cycle of reduced incidents and decreased insurance premiums.


Multiple data points come together to tailor workers compensation insurance premiums specific to the risk profile of each employer.  By understanding these components, employers can take steps to manage their risk, improve safety, and potentially lower their experience mod and insurance costs.  Implementing safety programs, reducing claim frequency and severity can contribute to a more favorable experience mod.